Robinhood To Pay $65 Million To Settle SEC Probe

The investigation into Robinhood by the  U.S. Securities and Exchange Commission has come to a head — and the stock-trading platform has agreed to pay $65 million to settle claims that it did not do enough to inform customers about its business deals with high-speed trading companies.

The SEC reportedly filed charges on Thursday (Dec. 17) that Robinhood deceived customers about how it makes money and failed to deliver the promised best execution of trades. Robinhood did not admit or deny the SEC findings.

The company offers a brokerage app that is often favored by inexperienced investors. CNBC reported that the Silicon Valley startup has raised than $1 billion in funding this year, giving Robinhood a valuation of $11.7 billion.

“Between 2015 and late 2018, Robinhood made misleading statements and omissions in customer communications (regarding) its largest revenue source when describing how it made money – namely, payments from trading firms in exchange for Robinhood sending its customer orders to those firms for execution, also known as ‘payment for order flow,’” an SEC statement read.

“One of Robinhood’s selling points to customers was that trading was ‘commission free,’ but due in large part to its unusually high payment for order flow rates, Robinhood customers’ orders were executed at prices that were inferior to other brokers’ prices,” the statement added.

On Wednesday (Dec. 16), Massachusetts securities regulators filed a complaint against Robinhood alleging the company aggressively marketed to inexperienced investors and failed to implement controls to protect them, violating state laws and regulations.

The complaint alleges that Robinhood fell “far short of the fiduciary standard” adopted this year that requires broker-dealers to act in their clients’ best interests. The complaint was from the office of William Galvin, Massachusetts secretary of state.

Robinhood disagrees with the state’s allegations, a spokeswoman said in a statement to The Wall Street Journal.

“Over the past several months, we’ve worked diligently to ensure [that] our systems scale and are available when people need them,” she said. “We’ve also made significant improvements to our options offering, adding safeguards and enhanced educational materials.”